Sunday, December 18, 2016

Charting Last Week (12/12 - 12/16/16)

I have revamped my Daily Leading Index and have changed it to the North Star GDP Forecast. It is now calibrated to forecast GDP (real US Gross Domestic Product). Official GDP is announced quarterly with a long lag. GDP for the fourth quarter (October-December) won't be announced until the end of January, 2017. The North Star GDP Forecast for the fourth quarter is 1.65% year over year growth which is slightly higher than last quarter's official 1.50% growth over the third quarter last year. A 1.65% growth rate is well below average when the economy is not in a recession, but it is in line with recent growth for the last year.

Below is a slideshow showing GDP going back to 1920 with explanations on how the GDP Estimate and Forecast work.

Here is a link to the old Daily Leading Index for comparison purposes: Daily Leading Index. The new GDP Forecast is more accurate and is more intuitive. Now it is easy to tell exactly what a 1.65% growth rate means.

Stock prices were down for the week while Bond prices were mixed. The Fed raised rates by 0.25%, the first rate hike since last December. The Fed Funds futures are implying a 75.3% chance of another rate hike by June 2017 up from a 60.8% chance last week according CME Group's FedWatch tool. The charts below show the normal trading ranges for various indices for the last six months. The red (or green) area indicates 2-3 standard deviations above (or below) the normal 21 day trading range. The gray area indicates 1-2 standard deviations above (or below) the normal 21 day trading range.

The Leading Indicator for International Developed Markets (EFA) increased by 0.01% percentage points to 1.06%. The Leading Indicator for International Emerging Markets (EEM) is at 4.87%. On the chart below, you can click on the blue and red buttons to see the Leading Indicator growth rate and an ETF for each country.    
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These charts have limitations. Economic data is often revised after the fact. The market is forward looking and anticipates future events. The unexpected can and will happen. The market is continually changing. The conditions of the past are different from the present. Past performance is not an indication of future performance.